Question

Corporation's budgeted production in units and budgeted raw materials purchases over the next three months are given below:

	January			February		March
Budgeted production (in units)	72,000			?		90,000
Budgeted raw materials purchases (in pounds)	257,800			181,600		168,800

Four pounds of raw materials are required to produce one unit of product. The company wants raw materials on hand at the end of each month equal to 20% of the following month's production needs. The company is expected to have 57,600 pounds of raw materials on hand on January 1. Budgeted production for February should be:

Answer 1

Budgeted production for February should be: 34,250 units

Working

Purchases budget
	January	February
Units to be produced	72000	34250
Multiply by Quantity of Direct material needed per unit	4	4
Quantity needed for Production	288000	137000
Plus: Desired Ending inventory of direct materials	27400
Total Quantity needed	315400
Less: Beginning inventory for direct materials	57600
Quantity to purchase	257800

To get 257800 in material to be purchased in January the desired ending inventory of January should be 27400.

If 27400 is January's desired ending inventory then it means total materials needed in February for production should be 137000 (27400/20%)

If material needed for production Feb is 137000 then units to be produced will be 34250...(137000/4)